Q&A: From the Nexus of Lexus

A talk with Kousuke Shiramizu, quality guru for Toyota's luxury cars

Toyota Motor Corp.'s (TM ) trusty sedans have always been known as reliable, low-maintenance cars--so much so that they command a high resale price when it comes time to upgrade. A decade ago, Toyota owners may have moved up to a Cadillac or even an entry-level Jaguar or Mercedes-Benz. Not anymore. These days, it's just as likely that next car will be another Toyota, sold under the Lexus badge.

In just 12 years since the brand was launched, Lexus has vaulted to the top of a very competitive field. The current record for most trouble-free car in J.D. Power & Associates' survey of new-car quality is held by the Lexus line's flagship LS 430 sedan. The quality edge attracts new buyers, as do Toyota's smart marketing and service at dealerships. Then there's timing. The auto maker rolled out the Lexus emblem just in advance of the longest economic growth spurt in U.S. history. The payoff: Lexus recently nabbed the top sales spot in the U.S. market for luxury sedans (chart).

To find out how the company built a world-class luxury car from scratch and beat out storied competitors such as Cadillac and Lincoln, BusinessWeek turned to Kousuke Shiramizu, global chief of Toyota's luxury-car production. The former head of Toyota's Tahara plant, where most Lexus are made, Shiramizu is now executive vice-president in charge of Toyota's production engineering. He spoke recently with Tokyo correspondent Chester Dawson at Toyota's headquarters in Toyota City. Translated excerpts of that conversation follow:

Q: How did Toyota go about setting a global benchmark for quality with its Lexus line?

A: In building the Lexus, our operating principle has been to cut the margin for error in half. Everything was fair game, such as reducing the small space between body panels. This helps reduce wind noise when the car is being driven. We also went to extremes to rethink the way we made cars--everything from the casting of the stamping dies used to form the car's metal parts to the exterior finish. Previously, our mainstay cars had gaps [between the front and rear doors] of about 7 millimeters. Our goal for the LS 400 was to cut that average in half, to 4 mm.

Q: Better design is one thing, but how do you ensure that the quality will carry through the assembly process?

A: When we started, it was hard to systematize the way we put together parts. But we developed processes for everything, right down to the way the seat leather is cut. Now, thanks to advances in production technology over the past decade, it's all systematized to allow for mass production. All of that knowledge results in better stamping dies, which then makes it easy to produce on greater scale.

Q: Why are stamping dies, or molds, so important in the fit and performance of components?

A: Take the two exterior side panels on a car. Each of these is basically made up of four main components. When put together to form a panel, there's a lot of room for minor aberrations such as cracks and wrinkles. So we developed a mold press that stamps all four parts as a single component. That made it a lot easier to mass-produce them with fewer quality problems. We've adopted these approaches in the manufacturing of all Toyota models. So that's a clear spin-off benefit from the development of the Lexus line.

Q: What about design improvements before the factory stage?

A: We can develop cars in a very short period of time. It takes us only 12 months to go from the design table to building a new Corolla-class car. No American or European auto maker comes even close. Other auto makers are reportedly aiming to cut their development cycle to just under 30 months, but we're now shooting for a 10-month cycle. From a strategic point of view, that's a huge difference. We're striving to shorten the time even more--to a level that should really astonish people. For example, it used to take about seven months to make the stamping dies for a new Lexus. Now we can do the job in two months, and our current goal is to bring that down to just one month.

Q: This improvement must come partly from the increased use of digital design. How much work previously done with physical models is now virtual?

A: About 80%. It used to be that only the most skilled technicians could evaluate new models, determining where it might be hard to insert a hand or a tool on the production line and other things like that. But rather than rely solely on veteran workers, it's now done with computers. Instead of bringing in hired guns, we retrain our staff to use the new technology. Computer experts, almost by definition, don't know a lick about cars.

Q: How much does computer technology help cut costs?

A: By a vast amount, mostly by reducing the need for prototypes. Consider that Toyota's entire product line has grown by roughly 50% in just 10 years. For example, the Vitz subcompact model has four derivative cars [sharing the same platform and engine] such as the FunCargo wagon, a small sedan version [sold in the U.S. as the Echo] and the bB hatchback. So the number of models is up dramatically. We've gone from about 40 models to more than 60. And that's all basically without having increased the number of staff in our development and production technology departments.

Q: Every Lexus currently sold is made in Japan. The first Lexus to be produced overseas is the RX 300 SUV, which will be made at a plant in Canada starting in 2003. Why has it taken so long?

A: Building stamping die plants abroad is the first step in transferring the bulk of our production technology. But these operations must be carefully nurtured. The quality of molds manufactured in the U.S. has improved to the extent that we are now confident Lexus brand vehicles can be produced in North America. In time, if the volume of Lexus sales overseas increases, the relative proportion of locally made models will increase.

Q: Tell us something about the engineers in charge of Lexus.

A: These are people who have done their homework. Engineers who have never set foot in Beverly Hills have no business designing a Lexus. Nor has anybody who has never experienced driving on the Autobahn first-hand. It takes a lot of training, even for our white-collar staff. Their knowledge of the marketing situation on the ground must be perfect. It would be very hard for a Corolla designer to jump directly into a job designing Lexus models. First, you've got to have experience with domestic-only luxury cars such as the Crown. Then, perhaps, the next step is Lexus.

Q: Any notable screw-ups in developing Lexus cars?

A: We got burned with the second-generation Lexus LS 400. We tinkered with it. We asked Lexus users what they wanted, and we got a lot of opinions--like keep a bit more of the vehicle's front grill from the first generation, or don't. In the final analysis, the second-generation car can't be called a smashing success compared with the first Lexus. It was too much a carryover from the first. But with the third-generation model, we have succeeded once again.

Q: What's the outlook for sales of luxury cars?

A: Even if the U.S. economy retracts, we're talking about huge volumes. American car buyers demand a lot, but they're very up-front about what they want: value for the money. So in those terms, Lexus is still on track for expansion. That's precisely why we're looking into extending the Lexus lineup with some different products. We're building a new auto painting facility in Tahara, and we want a new Lexus model to go along with it. I can't say exactly when to expect the new model, but it won't be this year.

Q: What sort of car will this be?

A: Let's just say we think the sedan segment is getting a bit repetitive. The new car will probably involve a model change. But it's asking a lot to come up with a completely new car. After all, Toyota already makes 60.

    Before it's here, it's on the Bloomberg Terminal.